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Supply Chain
measurements or metrics
such as Inventory Turns, Cycle Time, DPMO and Fill Rate
are used to track Supply Chain performance.
Commonly used by Supply Chain Management, metrics can help you to understand how your company is operating
over a given period of time. Supply Chain Measurements
can cover many areas including Procurement, Production, Distribution,
Warehousing, Inventory, Transportation, Customer Service - any area of logistics. However, a
good performance
in one part of the Supply Chain is not sufficient. Your Supply Chain is only as strong
as its weakest link. The solution is for you to focus on the key metrics in each area of
your Supply Chain.
As you view the links to the left, there are a few things to keep in mind:
1. Tracking your Metrics allows you to view your performance
over time and guides you on how to optimize your Supply Chain. It allows management to identify problem areas.
It also allows for comparison to other
companies through like industry benchmarking.
2. Certain metrics, such as Inventory Turns, have a widely accepted
definition. Other metrics, such as Backorders, may need to be customized for
your particular industry or logistics business model.
3. Measurements alone are not the solution to your weak areas! The solution lies
in the corrective actions that you take to improve the measure. The solution
comes from process or system improvements.
4. Supply Chain Measurements should have owners....people or departments that are responsible
for achieving an agreed uopn target on the metric. Supply Chain Management needs to encourage
and support
the process changes to achieve the desired targets.
Using the correct set of metrics can lead you to realize if you have the
proper balance between service and cost.
But how do you optimize your Supply Chain
performance? How can metrics lead to an improved logistics management of your Supply
Chain? How do you calculate Inventory Turns, Fill Rate or Backorders?
Although metrics do vary, we give you a general overview of
some common Supply Chain Measurements in use today.
f Just click on the links to the left to learn more about
the basics of Supply Chain Management Metrics.
The
goal of this website is to give a basic overview of Supply Chain metrics that
cover Inventory, Sourcing, Manufacturing, Transportation and Distribution.
How can you use Supply Chain Metrics to improve your
logistics operation?
Try following these basic steps....
1.The first step is to identify the metrics that you want to use. Do not use
every metric available. Rather, focus on the vital measurements the mean the
most to your business.These can be considered your KPI's (key performance indicators). You should have 3-5 KPI's per functional area. If you decide to include numerous measurements, you may encounter "analysis paralysis".
2. Next, you need to understand
the meaning of these metrics. It is not enough for management to simply view these
measurements, they must also understand the meaning behind them.
3.The next step is to learn the mechanics behind
the measurements. What drives them...positive & negative. Try to understand
the various factors that influence your results.
4. Using this information, identify weakness or areas of improvement
in your current processes.
5. Set goals based on these improvement areas. The goals should be aggressive,
but yet obtainable. Goals can be based on benchmarking against like companies or goals can be set to reflect a specific percentage improvement over past performance.
6. Put corrective action in place to improve your processes. Make sure that these corrective actions do not negatively effect other areas. Also, check that all
effected areas have a clear understanding of the changes.
7. Monitor your results. Did your corrective actions yield your desired results?
If so, what is your next area for improvement? If you did not get the desired
results, what went wrong? Try to identify the root cause of your undesired results.
Are you still not sure which metrics to use? Take this approach, ask yourself how your manager will rate your departments performance. Is it based on the inventory level verses sales, if so consider using Inventory Turns. Is it based on the speed at which you fill orders...if so consider Turn Around Time or Fill Rate. Is it based on over cost?...if so, then consider a metric that tracks over all cost verses your goal.
Once you have this metric(s) in place, then consider how your end customer views your success. You should then establish a metric to rate how your customer views your performance (fill rate, on time shipments etc).
Since February 2001, SupplyChainMetric.com has been the leading Supply Chain measurement
site on the web. If you would like to contribute a metric to our site, please email us.
Our goal is to guide companies that are looking to
optimize their Supply Chain. Originally, we intended on answering questions about Inventory
Control, Sourcing, Manufacturing, Distribution and Supply Chain Metrics. However, we currently do not have the resources to answer individual questions.
If you want to contact me, email me at: john@supplychainmetric.com
For information on Inventory Turns, Fill
Rate Measurement, Backorder Reporting or any other Logistics Supply Chain Management
Measurement (metric), click on
the links to the left. The text that appears on this website is the
opinion of the webmaster. Metrics may or may not be uniform across all
industries. We recommend contacting a qualified Supply Chain
consultant before implementing a measurement program.
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